Foreign technicians deputed under collaboration agreements: payments treated as technical services, not salary, absent employer-employee relationship

Payments made by an Indian company to foreign collaborators for deputing technicians were treated as fees for technical services, not salary, where the technicians remained employed by their foreign principals and no employer-employee relationship existed with the Indian company. The nature of the collaboration agreement was decisive, and the receipts were not taxable as salary in the hands of the technicians. On that basis, the Explanation to Section 9(1)(ii) did not apply to characterise the amounts as salary income.

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Issues: Whether the amounts paid by the Indian company to the foreign collaborators for deputing technicians to India were taxable in the hands of the technicians as salary under the Income-tax Act, or were payments for technical services not chargeable as salary.

Analysis: The technicians were deputed by their foreign employers under collaboration agreements entered into by the foreign collaborators with the Indian company. The Indian company's obligation was to pay the stipulated fees to the foreign collaborators on a per diem basis, while the technicians continued to be in the employment of their respective foreign principals and there was no privity of contract or employer-employee relationship between the technicians and the Indian company. The nature of the payment under the collaboration agreements was therefore decisive. Payments made for deputation of technical personnel under approved collaboration agreements were treated as fees for technical services and not as salary earned in India. On that basis, the Explanation to Section 9(1)(ii) did not govern the receipts as salary income, and the amounts were not taxable as salary in the hands of the technicians.

Conclusion: The assessment of the amounts as salary income was unsustainable and the issue was decided in favour of the assessee.

Ratio Decidendi: Where foreign technicians are deputed to India under an approved collaboration agreement and the Indian company pays the foreign collaborator for technical services, the payment is not salary in the hands of the technicians in the absence of an employer-employee relationship with the Indian company.

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